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June 29, 2006
Welcome to The Pipeline, Andrew Davidson & Co., Inc.'s monthly newsletter. Created as a "pipeline" of relevant and useful information for participants in the fixed income industry, we address recent trends, changes and advances that our consultants, developers and sales force have extensively studied. We value your input and urge you to contact us with questions, comments or article suggestions. Enjoy!
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AD&Co. Update
New Prepayment Model Version v5.1e
By Rob Landauer
We are pleased to announce the availability of a new version of the AD&Co. Prepayment Model, v5.1e. This new version was announced at our annual conferences and provides two significant enhancements to the v5.1d model. Read more...
Model Performance Review
Performance Analysis
By Dan Szakallas
Prepayments rebounded for the month of May after the sizeable drops seen in April. We saw increased speeds across the board, with most coupons posting gains in the 6-12% range. FNMA 30-year discounts (4.5's to 5.5's) rose by 14%, 13%, and 9%, while the burnt out premiums (7.0's to 8.0's) increased by 7%, 5%, and 6%, respectively. This pattern was consistent for the FHLMC collateral as well. Read more...
Valuation Commentary
The MBS Basis Risk
By Alex Levin
MBS basis risk is the risk of a widening or a tightening of an MBS spread to the swap (agency, Treasury, etc) benchmark curve. The most common measure of the basis is either the nominal spread or the OAS reported for a current-coupon MBS. In my opinion, the latter is the preferred measure as it removes an indirect volatility effect. Read more....
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The information contained in The Pipeline is believed to be reliable, but its accuracy and completeness are not guaranteed. All expressions of opinion are subject to change without notice. The Pipeline is provided for informational purposes only and is not a solicitation, endorsement or a recommendation for purchase or sale of any particular security. An affiliate of Andrew Davidson & Co., Inc. engages in trading activities in securities that may be the same or similar to those discussed in this publication. Copyright 2006. |
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